Billionaire Stephen Mandel is Bullish about This Stock
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Tiger Cubs, those hedge fund managers who learned the tricks of the trade from Julian Robertson at Tiger Management, are really excited about travel websites. When we look at our database of 13F filings from the end of the third quarter, the top five owners of market leader Priceline's (NASDAQ: PCLN) stock are all Tiger Cub funds. The largest position, at 1.4 million shares, or nearly $900 million at that time, belonged to billionaire Stephen Mandel’s Lone Pine Capital (see Mandel's stock picks). But interest in travel websites isn’t limited to Priceline; three of the top four hedge fund positions in Tripadvisor (NASDAQ: TRIP) belonged to Tiger Cubs as well, with Lone Pine initiating a position of 5.7 million shares in the third quarter of 2012. Now Mandel and his team, according to a 13G filed with the SEC, have bought a total of 6.5 million shares of the stock, giving the fund 5% of the total shares outstanding.
Tripadvisor was spun off from Expedia (NASDAQ: EXPE) about a year ago to focus on providing reviews and other information about hotels, restaurants, and other locations (as opposed to Expedia’s focus on reservations). According to the company’s most recent 10-Q, revenue was up 18% in the third quarter compared to the same period in 2011. Net income was up 9%, though earnings per share were about flat as the result of an increase in share count. The market is pricing in high growth, with a trailing P/E of 32, and we would generally want to see better historical earnings growth for a stock at that multiple.
Two other Tiger Cubs with large holdings of Tripadvisor at the beginning of October were Andreas Halvorsen of Viking Global (check out Halvorsen's stock picks) and Philippe Laffont of Coatue Management, who actually had the $6 billion market cap company as one of his ten largest holdings (find more of Laffont's favorite stocks). Luxor Capital, managed by Christian Leone, more than doubled its own stake in Tripadvisor last quarter and closed September with 6.4 million shares in its portfolio, just below the 5% threshold. However, the most recent data shows that 16% of the outstanding shares are held short, so we know that a number of market players consider the stock overvalued.
The closest peers for Tripadvisor are Priceline and Expedia. These stocks both carry trailing P/Es of 23. Priceline reported double-digit revenue and earnings growth last quarter versus a year earlier, including a 27% growth rate on the bottom line, and it might be considered for “growth at a reasonable price” investing. Expedia’s earnings are down from a year ago, but that would be expected as Tripadvisor’s business had been included in its Q3 2011 results. Kayak would be a good comp if it wasn’t currently a Priceline acquisition target, but we can instead compare Tripadvisor to Chinese tour company Ctrip.com International (NASDAQ: CTRP). Ctrip trades at 27 times earnings, whether we look at trailing results or at consensus estimates for 2013, and considering that its earnings were down 40% in its most recent quarter compared to the same period in the previous year, we would avoid it.
It’s also interesting to compare Tripadvisor to another review company: local business reviewer Yelp (NYSE: YELP). Yelp is struggling with profitability, and only 2 cents of EPS are expected next year. The market cap is $1.2 billion, and it is a very popular short, but revenue at least has been up strongly. We don’t think it’s a good value, but the risk of Yelp being acquired is too high for us to recommend a short here.
Tripadvisor seems a bit expensive to us -- perhaps not as expensive as some similar companies, but earnings would need to come up quite a bit to justify the current valuation, and recent growth rates haven’t been particularly high. Priceline, and possibly Expedia, seem like better places to look for travel stocks.
This article is written by Matt Doiron and edited by Meena Krishnamsetty. They don't own shares in any of the stocks mentioned in this article. The Motley Fool owns shares of Ctrip.com International, Priceline.com, and TripAdvisor. Motley Fool newsletter services recommend Ctrip.com International, Priceline.com, and TripAdvisor. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!